Practical not Theory!
The financial press and social media are increasingly stuffed
to the gills with hype about PtPL but most of it is so superficial. You have probably seen some of the headlines:
- ‘PtPL investment increasing by 200% per annum’
- ‘UK PtP is the fastest growth in PtPL per capita in the world’
But 99% of this stuff is written by people who have never actually
DONE it! They have never signed up to
even the simplest platform such as Zopa or Ratesetter and given it a try.
They therefore don’t really know what they are talking
about. Hopefully you have arrived here
because you are an ordinary investor and you want to dip your toe in the water
and actually have a go at PtPL. Please
note that this post relates specifically to the UK market but the principles are
equally applicable to other countries.
STEP 1
My advice is start with Ratesetter (relatively safe
but uninspiring). It only takes a few
minutes to sign up. It costs
nothing. Invest a small amount (minimum
investment is £10). You can put your cash
in the 5 year market (interest around 6%) or shorter term markets where
interest is less. To start, I would
recommend the monthly market that currently pays 2.8%.
Beware the 5 year market as RS has relatively heavy
penalties for early withdrawal. As we
will see later, other sites will offer 12% or more on a 6 month loan. Many sites also have a secondary market so
you can sell your loans instantly without penalty.
Sites like Ratesetter and Zopa lend to individuals rather
than businesses. Defaults are generally
not a problem as they have a provision funds to cover this. Hence the lower rates of interest offered.
STEP 2
Next, sign up with Funding Circle (FC). Funding circle is more interesting. You bid for specific loans to
businesses. The down side is the risk of
default – there is no provision fund but FC do provide an estimate of default rate, based on loan category
(A+ through to E), based on their own historical data.
Most loans are unsecured so a default means you may lose
some or all of your investment in that loan.
I now only invest in secured property loans on FC and leave the unsecured
loans alone. Loans secured against
property mean you stand a good chance of getting all your cash back (assuming
the valuation is accurate) once the property is sold.
Interest rates on FC have fallen somewhat and the chance to
bid for your own rate has been removed. A+ loans pay around 6.5% (after defaults) while E loans (highest
risk) pay around 9%.
Look out for Cashback on some larger A+ property loans. I recently got a tasty 2% on a 6 month loan. However, since the New Year, Cashback flow has
dried up due to both a seasonal loan famine and increasing number of new
borrowers hungry for fresh loans.
Unlike Ratesetter and Zopa, FC has a decent secondary market
so you can normally get your cash out quickly, sometimes at a premium or, if you are desperate,
at a discount.
STEP 3
This is where PtPL gets more interesting (and more
lucrative) via platforms such as Saving Stream, Money Thing and Funding Secure. We are talking here about loans of 12-13% (with
some manageable risk) for terms as short as 6 months (renewable) as well as the
option to sell without loss on the secondary market. Anyway, that's enough for now. I’ll continue step 3 in my next post.
In the meantime, happy PtP Lending!
No comments:
Post a Comment